Green accounting for greener energy

Renewable and Sustainable Energy Reviews 14 (2010) 2473–2491

Green accounting for greener energy

M. Stanojevic a,*, S. Vranes a, I. Gokalp b

a University of Belgrade, The Mihailo Pupin Institute, Volgina 15, 11060 Belgrade, Serbiab LCSR/EPEE/CNRS, 45071 Orleans cedex 2, France

Contents

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2473

2. Environment on the wrong side of the balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2475

3. Investment projects evaluation using green accounting standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2476

4. Investment into CHP appraisal using conventional discounted cash-flow methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2477

5. Appraisal using green accounting standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2480

6. Demand side effects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2481

7. Fuel selection in CHP production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2484

8. Summary of results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2486

9. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2489

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2490

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2490

A R T I C L E I N F O

Article history:

Received 13 May 2010

Accepted 16 June 2010

Keywords:

Renewable fuels

Combined heat and power plants

Green accounting

Financial appraisal

Socio/economic analysis

Multi-Criteria Analysis

A B S T R A C T

The first step towards the widespread use of renewable energy sources and preservation of our

environment for the people of the future is to adopt the ‘‘green accounting’’ standards that translate

socially and environmentally responsible behavior into monetary terms, the only language businesses

understand. These standards have the potential of switching on the red light for all pollution-causing

power plants, and those depleting the natural capital in any way, be it over-harvesting the forests, or

exhausting the underground treasures – coal, oil, natural gas, etc. This paper will show how green

accounting can help in changing the focus from the economic welfare to the total societal welfare,

acknowledging the fact that human society is an integral part of the natural world. The paper will also

briefly present the software developed by the authors that introduce the green accounting principles into

the investment appraisal process, aiming at encouraging investments into renewable energy. The tool is

also useful as a platform facilitating calibration of economic/financial instruments, like environmental

taxes of governmental incentives, that are usually to boost renewable energy sector. The comparative

analysis of investment into biofuel-powered combined heat and power production plant using two types

of investment valuation standards, one based on conventional cash-flow analysis, the other based on

green-accounting standards is detailed in the paper. The analysis is performed as a part of the European

Commission Framework Program Project AFTUR, undertaken by the consortium consisting of respectful

European Research Establishments in renewable energy area as well as major European biofuel-powered

turbine producers. The results show that the wider adoption of green accounting standards would

induce the unprecedented growth of the renewable energy sector, because it would make the

investment into renewable energy attractive for investors.

� 2010 Elsevier Ltd. All rights reserved.

Contents lists available at ScienceDirect

Renewable and Sustainable Energy Reviews

journa l homepage: www.e lsev ier .com/ locate / rser

* Corresponding author. Tel.: +381 11 2774 024; fax: +381 11 2776 583.

E-mail address: [email protected] (M. Stanojevic).

1364-0321/$ – see front matter � 2010 Elsevier Ltd. All rights reserved.

doi:10.1016/j.rser.2010.06.020

1. Introduction

While the considerable attention has been paid to thestandardization in the technical domain, especially regardingthe interconnection of the renewable energy sources to the utilitygrid [1–4] there is almost total neglect of equally importanteconomic/financial standardization that would motivate more

http://dx.doi.org/10.1016/j.rser.2010.06.020

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http://dx.doi.org/10.1016/j.rser.2010.06.020

[(Fig._1)TD$FIG]

Fig. 1. Natural capital depletion (Source: World Bank [7]).

M. Stanojevic et al. / Renewable and Sustainable Energy Reviews 14 (2010) 2473–24912474

widespread use of renewable energy sources. However, there isa wide recognition of natural capital depletion problem, andfossil fuels being one of its major causes. ‘‘According to theenergy scientists, increasing energy usage coupled with thedepleting natural resources to generate energy will cause a largesupply to demand discrepancy in near future. The best answer tothat crisis will be the use of renewable energy. Unlike fossilfuels, the renewable sources are sustainable. The use ofrenewable energy technologies today will not only benefit usnow, but will benefit many generations to come’’ [5]. However,the wide awareness of the sustainability of renewable energysources is not sufficient to motivate their wider use as long asthey are less cost effective, which they definitely are if we usecurrent accounting standards and cost benefit analysis that doesnot take into account the changes in natural systems. Evenworse, if they are taken into account, they are put on the wrongside of the balance sheet (see Section 2). In any socially andenvironmentally responsible accounting for ‘‘how well we aredoing,’’ changes in natural systems should be evaluated as wellas commercial ones.

After having witnessed countless ecological disasters and theprogressive degradation of the earth’s ecosystems, society isbeginning to ask for the environmentally responsible behavior onthe part of both government and businesses. Of course, if businessmanagers are left alone to solve the ethical dilemma – to make aprofit or to preserve the environment, the result would be ratherpredictable. Therefore, there should be a standardized, quantita-tive way to hold the businesses accountable for polluting anddestroying our environment that goes beyond environmentaltaxation or forcing industries to clean-up what they polluted. Mostof the damages are irreversible, i.e. they cannot be ‘‘undone’’ sothey should be prevented instead. One way of doing this is byintroducing so-called ‘‘green’’ (environmental) accounting, asystem in which financial and economic measurements take intoaccount the effects of power production and consumption on theenvironment. This way, any power plant that damages criticalnatural capital, especially the irreplaceable one, is accounted for it.When environmental stewardship is expressed in monetary terms– the only language businesses understand, the above mentionedethical dilemma has some chances to be solved to the benefit of thesociety as a whole.

Therefore, the ‘‘green accounting’’ should be introducedurgently, as nicely put by British Prince Charles in his speech atthe Institute of Chartered Accountants when he said: ‘‘Your

profession is one of the key pillars of our economic stability and

prosperity, but to ensure that our descendants can experience

something of prosperity there is a very real urgency to adapt our

accounting procedures to the critical challenge of minimizing the

wasteful damage done to the fragile world around us through man’s

increasingly short-term perspective.’’ [6].The standard accounting system has indeed this short-term

perspective, as Prince Charles has put it. Therefore, unless broaderand longer-term environmental and social factors are consideredmore effectively in accounting, what we enjoy today will be at theexpense of our children and grandchildren. Society must be able tohold power plants accountable for their environmental impact, andfor this to happen, it is essential that communities can accessinformation about the environmental impact of their activities. Thebest way to do this is to express this impact in the monetary termsso that it appears in the balance sheets. When we attach price topollution rates and to the irreplaceable natural capital consump-tion (be it coal, oil or natural gas), it will then become visible on thebusiness radar and disclosed to the wider public sooner or later.This is only possible if the ‘‘green accounting’’ becomes widelyadopted. And if we look at Fig. 1 bellow, taken from the World Bankreport [7], we will see how critical the state of the Natural capital in

the high income countries already is (only 3% of total capital). It is,therefore, easy to conclude that the red light for polluters should beswitched on immediately, and it could be done by the ‘‘greenaccounting’’ only.

The most effective measures are the preventive ones thatactually discourage the start-up of businesses that could furtherdamage the Natural capital. This could be done introducing the‘‘green accounting’’ in the phase of the investment projectappraisal and business plan preparation for a new power plant.When the investment projects are prepared in conventional way,using traditional cash-flow analysis, the environment protectioncosts are usually assumed not to affect significantly a new factory’soperations [8,9]. Both owners and managers emphasize profitabil-ity indicators, like the return of investment period, breakevenpoint, internal rate of return, etc., which is easy to understand. It isonly normal for them to wish for the investment to pay off as soonas possible, and if they invest in cheaper ‘‘non-green’’ technologiesand cheaper ‘‘non-green’’ energy sources, like fossil fuels, it willhappen sooner. However, if the ‘‘green accounting’’ is used thatpenalizes for the damage done by using cheaper ‘‘non-green’’ fossilfuels, investors might actually conclude that the greener energysources actually pay off in longer terms.

When the ‘‘green accounting’’ is used, it is necessary to identifyand quantify the environmental impact of the investment projectand the cost of annulating this impact (soil remediation, waterpurification, and other clean-up action), not to mention irrevers-ible damage to the environment and human health. Without thesecalculations, investment managers may make very ‘‘expensive’’wrong decisions, especially from the perspective of futuregenerations. The costs treated by the standard accounting areinsufficient if the environmental and social responsibility isconsidered. And they should be considered, because power plantsdo not operate in a vacuum. They operate in the environment fromwhich they irreversible take the energy sources (non-renewableones like fossil fuels), and they operate in a community from whichthey borrow their work force and which may also be impacted bytheir operations. Standard accounting reflects a fantasy economicsthat assumes an infinite supply of non-renewable raw materialsand zero costs associated with the consumption and disposal ofgoods. Non-renewable resources like crude oil follow a bell shapedsupply curve. During the easy to find and extract ‘‘up’’ side of bellcurve, supply out-strips demand and prices are low. In most mindssupply and reserves are thought to infinite and no thought is given

M. Stanojevic et al. / Renewable and Sustainable Energy Reviews 14 (2010) 2473–2491 2475

to conservation. Indirect costs like pollution, suburban sprawl,energy insecurity, and climate change are not translated intomonetary terms and factored into the price, but are paid none theless through higher healthcare costs, lower productivity, taxes, and‘‘natural’’ disasters. ‘‘Green accounting’’, however, factors all thisindirect effect into costs and therefore proves to be the mosteffective way of addressing these challenges [10].

To show how the perspective changes dramatically when weuse green (environmental) accounting instead of standardaccounting in investment project appraisal, we will use anillustrative example of biofuel-powered combined heat and powergeneration plant. The economic and financial indicators that arecrucial to boost an investment into renewable energy sourceschange significantly. Both analysis are performed using softwarepackages developed by the authors [8,9], and are thereforecompletely unbiased. If we further combine these indicators toother sustainability indicators, like social, environmental, techno-logical, using the multi-criteria analysis platform using outrankingmethodology (also developed by the authors), the results will befurther in favor of renewables.

The paper is structured as follows. Section 2 describes the basicprinciples of environmental (green accounting) and shows howerroneous the standard accounting can be from both corporate andnational point of view. In Section 3 we will briefly describe a web-based decision support system, developed by the authors of thispaper, that actually enables investment project evaluation andappraisal using green accounting principles. In Section 4 we haveprovided the results of an ordinary financial appraisal forindustrial-scale CHP plants using different fossil and bio-fuels.Section 5 describes the effects of applying the principles of ‘‘greenaccounting’’ on the profitability and ranking of analyzed CHPplants. In Section 6 we have performed a socio/economic analysisbased on the demand side effects. In Section 7 we have presentedthe results of Multi-Criteria Analysis (MCA) applied on various CHPplants using different fossil and bio-fuels based on 44 technologi-cal, financial, socio/economic and environmental criteria. Section 8contains a brief summary of all results, while Section 9 presents theconclusions.

2. Environment on the wrong side of the balance sheet

‘‘Green or environmental accounting describes an effort to

incorporate environmental benefits and costs into economic

decision making.’’ – Gernot Wagner [11]

Green accounting induces some rather sensitive issues, since itsignificantly influences the cost effectiveness of the operations,which is main corporate concern. Many attempts to monetarizeenvironmental impacts seriously underestimated the significanceof these issues relative to the economic issues [12]. Therefore, acorporate ‘‘green accounting’’ should be precisely regulated andstandardized in the same way as the old fashioned accounting was.For that to be done, the academic accounting community has aresponsibility to reach consensus among all affected stakeholdersregarding how accounting and organizational management canfulfill their responsibilities towards our environment and oursociety as a whole [13].

While corporate ‘‘green’’ accounting is concerned with busi-ness’ environmental impact, national ‘‘green’’ accounting shouldtry to accomplish the same on a country level. When we speakabout the national level, than the Gross Domestic Product (GDP) isby far the most important economic indicator, and it is oftenconsidered to be a measure of national welfare. While the GDP doesa rather good job of estimating the size of our economy, it iscompletely inadequate as true welfare measure. Not only that it

ignores our environment completely, but even worse, it oftenincludes the environment on the wrong side of the balance sheet. Ifwe first pollute and then pay to clean up the pollution, bothactivities actually add to GDP.

Environmental degradation frequently looks good for theeconomy, which is absurd that could be illustrated with simpleexamples. A huge Exxon Valdez oil spill in Alaska, actually postedgains to the GDP, because the additional costs of the clean-up areadded to GDP instead of being subtracted, what would have beenexpected. Similarly, when a paper mill dumps dangerouschemical wastes into a river, the paper-making boosts GDP,but no deduction is made for the costs associated with waterpollution. Again, water remediation and purification activitiesare added to the GDP. GDP actually shows measures to tacklepollution as bonuses, not as burdens. An imaginary country thatwould cut down all its forests, sell the trees as wood chips andgamble away all the money, would appear from its nationalaccounts to have become richer in terms of GDP per capita. IfBrazil cuts down its entire rainforest and sells off its trees thisyear, GDP would jump up enormously, because the market valueof all those trees gets added to GDP. But nobody subtracts the factthat those trees are no longer there. With green accounting wecould determine the economic value of these trees, since theyproduce oxygen, purify air and water, provide watershedprotection, prevent soil erosion, etc.

Similarly, as professor Davis from the Colorado School of Minessaid in his radio interview, ‘‘Every time we mine a ton of coal, GDP

goes up by $17 a ton, but that doesn’t take into account the fact that

we’ve harvested one ton of coal from the Earth and that ton of coal is

no longer there and will never be there again. The green accounting

would add in depletion, and when you do that, the numbers start to

change. The value to society of that ton of coal in GDP terms would be

about $17 for West Virginia coal. In green income terms, it would be

about 5 Dollars and 50 cents’’. And this adjustment only accounts forthe decrease of coal as the underground asset. It does not consider amore important human cost. If the medical bills of all those minersthat suffer from black lung disease or hearing loss are subtractedfrom the economic value of the coal, the price would be even lower.Paradoxically, the illness of the coal miners actually adds to theGDP as well as the cost of cleaning up abandoned mines andremediating the polluted environment. All these environmentalcosts appear on the wrong side of the balance sheet, and make theenvironmental degradation look good for the economy. Howethical?! Therefore, both corporate and national accountingsystems need their own Copernican revolution!

Too long accountants have been turning the blind eye to the realworld affairs, the substance of which is their business to capture[14]. The accountants are actually the best equipped to helpbusinesses to play their roles in reducing the greenhouse gases andother pollutants pouring into the environment. They shouldinclude the value of diminishing natural resources, and the cost ofincreasing atmospheric pollution, into the price of what we buyand consume! At the moment, these costs often do not appear inanyone’s books, or even if they do, they appear on the wrong side asshown above. Therefore, the cost of destroying a rainforest orpumping tons of carbon into the atmosphere seems to be zero.Almost all of these costs, for which future generations will paydearly, are given no value in accounts. They should be given valuein both corporate and national accounts and this value should bevisible not only in financial reports that appear on business radars,but also to the overall community. Indeed, it is our society as awhole that should hold both businesses and governmentsaccountable for damage that they cause to our environment. Forthe moment, relying on GDP as the only measure of our well being,while it is only a measure of our economic output. GDP does notmeasure non-market goods and services. That’s where the ‘‘green


accounting’’ work comes in. It does not have anything to do withbeing green or being environmental, or being anti- or pro-industry.It’s simply good economics: accounting for all inputs, including ourenvironment. We account for how much labor is out there in theeconomy. We account for machines and other capital. But one bigitem missing from our accounts is natural capital. Greenaccounting assumes that, in addition to having capital and laboraccounts, there should be accounts for the natural capital: forests,subsoil assets, clean water and air, etc. Green accounting providesthe means of measuring the impact of economic activities onnatural capital that we all need desperately. ‘‘MillenniumDevelopment Goals are about creating wealth. If we don’t measureit right, we won’t manage it right,’’ warned World Bank VicePresident for Sustainable Development Ian Johnson, at the launchof ‘‘Where is the Wealth of Nations? Measuring Capital in the 21stCentury’’ on the eve of the 2005 World Summit. According to thereport from this Summit, governments and international orga-nizations must begin to calculate natural resource depletion,among other factors, if a more complete vision of a country’swealth is to be established and if the environmental costs ofdevelopment decisions are to be fully understood. Streamlining theaccounting of resource depletion is also an aim of the UnitedNations, which is setting up a commission on environmentalaccounting and aims to have a universally accepted standard by2010.

Obviously we need the green accounting urgently, but we alsoneed a new set of incentives, a new awareness and a completelynew kind of human behavior, if we want to preserve ourenvironment for the future generations. The ethical dilemma,profit or environment (i.e. future generations), exist only in minds ofshort-sighted, greedy businessmen. Those that have broader viewsand longer-term visions have no dilemma whatsoever – we shouldpreserve our environment for the future generations. ‘‘Leaders ofhigh-commitment, high-performance organizations, refuse tochoose between people and profits’’ [15].

[(Fig._2)TD$FIG]

Fig. 2. PEGAS assessing investm

3. Investment projects evaluation using green accountingstandards

In the investment projects evaluation and appraisal, it is oftenassumed that environmental costs are not crucial to the operationof a new plant. However, now that the environmental standardsare more severe, it often happens that some production costs havea significant environmental component, which is underestimatedor neglected by investment analysts. For instance, the purchaseprice paid for the unused portion of crude oil in power plant that isemitted into air or discharged into the waste water, is usually notrecognized as an environmentally related cost. These costs tend tobe much higher than initially estimated and should be controlledand minimized and the best way to do it is to use the greenerenergy sources.

In the standard cash-flow analysis investment projects areappraised according to different profitability indicators, like netpresent value (NPV), internal rate of return (IRR) or payback period.In case of environment-related projects recognizing and quantify-ing environmental costs and benefits is both invaluable andnecessary for the profitability assessment of the project. Withoutthese calculations, investment decision makers may come to afalse, irreversible and costly decision. To prevent such anirresponsible decision making, we have developed the decisionsupport tool for investment project appraisal based on greenaccounting principles. It is called PEGAS (Project Evaluation UsingGreen Accounting System) and a screen shot of the software inoperation are given in Fig. 2.

In the investment project analysis hidden, contingent andimage costs should be also taken into account. The costs stated instandard methodologies are insufficient to provide an accurateestimation of the profitability and involved investment risks. Manycost items related to environmental management and protectionmust be included in the project appraisal. Generally, these costsmay be grouped into five categories:

ents into biofuel CHP plant.


� Environmental portion of raw materials, utilities, labor and capital

costs. Although these costs are conventional costs which arealways taken into account during investment project analysis,the environmental portion of these costs, e.g. non-product rawmaterial costs, are not isolated and recognized as environmental.� Hidden administrative costs. Some costs like monitoring, report-

ing or training costs are usually underestimated and buried inother administrative costs.� Future contingency costs. These costs, related to possible clean-up

or recovery costs and fines, are hard to predict and very oftenthey represent a major business risk for the company.� Image benefits and costs. These are the so-called intangible or

‘‘good-will’’ benefits and costs, which arise from the improved orimpaired perception of stakeholders (environmentalists, regu-lators, customers, etc.)� External costs. These costs are commonly not taken directly into

account when making project decisions. However, the invest-ment managers should be aware that high levels of external costsmay eventually become internalized through stricter environ-mental regulation, taxes or fees.

PEGAS is a Web-based tool aimed at helping investmentmanagers to take into account all these environmental relatedcosts and benefits in investment project analysis and appraisal. Itprovides the standard cash-flow analysis based on the UNIDOmethodology, sensitivity and risk analysis as well as support formulti-criteria decision making for selecting the best investmentalternatives based on more than 30 static, dynamic and risk criteria.

All the capability of the software will be used to compare theinvestment appraisal results when both standard and greenaccounting principles are used. The case study is based on thebiofuel-powered combined heat and power (CHP) generationplant. Since the tool is capable to simultaneously take into accountall sorts of sustainability criteria (technological, economic,[(Fig._3)TD$FIG]

Fig. 3. FIDES sc

financial, environmental, social) it is easy to perform the sensitivityanalysis changing perspectives and relative preferences amongcriteria. It is also a platform for consensus reaching amongdifferent stakeholders, having sometimes not only different, butalso conflicting criteria. For instance, an investor would mostcertainly be more interested for the microeconomic effects andprofitability of the proposed CHP plant, a policy maker would beinterested more for the demand-side and other socio/economiceffects as well as for the efficient implementation of environmentalprotection policy, while an environmentalist would be primarilyinterested for the environmental pollution issues.

Since our main concern in this paper is to provide standardizedmeans for comparing CHP production using various fossil and bio-fuels, we have performed all feasibility studies and the evaluationof demand side effects for an industrial-scale CHP plant (18.6 MW),because biofuels of interest are still not available on the market inthe quantities needed for a large-scale CHP production. However, itwas impossible to find the reliable input data for different,industrial-scale CHP plants, so we had to scale-up or down (usingthe 0.9 rule) the investment and operation costs found for real-lifeexamples.

4. Investment into CHP appraisal using conventionaldiscounted cash-flow methodology

From the standpoint of investors into future CHP plant, themicroeconomic effects are of the utmost importance. To explorethese microeconomic effects, FIDES (Framework for InvestmentDEcision Support) has been used. FIDES [8] enables the decen-tralized creation, analysis and appraisal of investment projects(Fig. 3). As a basis for the investment project appraisal and thepreparation of feasibility studies, the standardized methodology ofthe United Nations Industrial Development Organization has beenchosen [16]. The methodology is based on modifications of

reen-shot.

Table 1Liquid biofuel production – basic data.

Parameter Rape-seed oil RME Flash pyrolysis oil

Capacity (tone/year) 750 100,000 2000

Construction (years) 1 2 1

Operating life (years) 30 30 30

Investment costs (s) 174,500 6,250,400 674,400

Biofuel price (s/t) 614 725 161

Biofuel price (c/l) 56 64 20

Table 2Dynamic indicators of liquid biofuel production.

Indicator Rape-seed oil RME Flash pyrolysis oil

Net present value (s) 95,465.11 30,729,001.40 78,433.60

Internal rate of return (%) 18.57 55.84 13.65

Normal payback (years) 6 3 7

Dynamic payback (years) 9 4 17

Relative NPV 0.55 4.92 0.12

Critical point (years) 2 3 2


integrated standard analytical tables, where financial analysis isbased on discounted cash-flow values. FIDES supports financialanalysis, sensitivity analysis, risk analysis and multi-criteriadecision-making to identify the best investment options basedon more than thirty static, dynamic and risk indicators.

Using FIDES, we have firstly performed the appraisal of theinvestment into heat and power cogeneration using differentliquid befouls, like vegetable oils, rape-seed methyl ether (RME)and flash pyrolysis oil, CHP plants that use these liquid biofuels andnaphtha as well as well as for the CHP plants using gasificationfrom wood, gasification from coal, slow pyrolysis (EDDITh)processes, waste methanization and Combine Cycle Gas Turbine(CCGT) using natural gas.

To assess the microeconomic effects of different biofuels, usedlater to evaluate the demand side economic effects, severalfeasibility studies have been performed. The feasibility study forthe rape-seed oil extraction plant is based on information found in[17], the study for the production of flash pyrolysis oils is based oninformation provided by Laboratory of Thermal Engineering,University of Twente, while the study for the RME productionplant is based on data found in [18] and data provided by InstitutFrancais du Petrole.

The feasibility study for the rape-seed oil extraction plant hasbeen performed for a small plant with the capacity of 750 toneof rape-seed oil and 1550 tone of cake per annum. Theconstruction phase takes 1 year, and the plant will operate 30years. The total investment costs for this extraction plant areestimated at 174,500 s. The price of rape-seed is taken to be300 s/t [19]. The investment costs are financed by a 20-yearlong-term loan with constant principal and 5.5% interest. Theprice of rape-seed oil is taken to be 614 s/t [20] and the price ofcake – 180 s/t [21].

The feasibility study for the RME production plant has beenperformed for a large plant with the capacity of 100,000 tone ofbiodiesel and 10,432 tone of high quality glycerin per year. Theduration of construction is 2 years, and the production phase takes30 years. The total investment costs for this plant are estimated at6,250,400 s. The price of rape-seed oil is taken to be 614 s/t, theprice of biodiesel is 725 s/t [20], and the price of glycerin is 350 s/t [22]. The investment costs are financed by a 20-year long-termloan with constant principal, 2 years grace period and 5.5% interest.

The feasibility study for the production flash pyrolysis oils hasbeen performed for a plant with the capacity of 2000 tons perannum. The construction phase takes 1 year, and the operating lifeis 30 years. The total investment costs are estimated at 674,400 s.The plant is operating using residuals from the forestry industry atprice of 40 s/t. The price of flash pyrolysis oil is taken to be161.29 s/t [23]. The investment costs are financed by a 20-yearlong-term loan with constant principal and 5.5% interest.

Some basic data from these three feasibility studies aresummarized and presented in Table 1.

The dynamic indicators of liquid biofuel production efficiencyat 12% discount rate are presented in Table 2. Financially, the mostefficient is the flash pyrolysis oil production, then RME production,and, at last, rape-seed oil production.

For the feasibility studies for CHP plants using different liquidbiofuels data found in [24] and [25] have been used. The 100 MWe

CHP plant has the heat to power ratio of 2 and 90% of heat andpower efficiency. The costs of this plant are then scaled down to thesize of industrial-scale CHP plant. The feasibility studies have beenperformed for the same plant using different liquid fossil and bio-fuels. The construction phase takes 2 years and operating life is 30years for all plants. For the financing of investment costs a 20 yearslong-term loan is used with constant principal, 4 years grace periodand 5.5% interest. The price of electricity is 13 c/kWh [26], whilethe price of thermal power is 3 c/kWh [27].

The total investment costs for a rape-seed oil CHP plant are6,582,885.55 s, total operating costs are 7,559,591.96 s withrape-seed oil costs representing the main part of operating costs.The CHP plant spends 11,741 tons per annum of rape-seed oil atprice of 614 s/t.

The total investment costs for RME CHP plant are6,697,172.78 s, while operating costs are 8,806,361.75 s withbiodiesel costs representing the major part of operating costs. TheCHP plant is using 11,663 tons per year of biodiesel at price of725 s/t.

The total investment costs for a CHP plant using flash pyrolysisoils are 6,358,034.64 s, total operating costs are 5,106,673.00 swith flash pyrolysis oil costs representing the main part ofoperating costs. The CHP plant is using 29,486 tons per year of flashpyrolysis oil at 161,29 s/t.

The total investment costs for a naphtha CHP plant are6,316,368.02 s, while operating costs are 4,652,128.00 s, wherecosts for naphtha represent the major part of operating costs.The CHP plant is using 9558 tons per year of naphtha at price of450 s/t.

Some basic data from the three feasibility studies for CHP plantsusing liquid fossil and bio-fuels are summarized and presented inTable 3.

The dynamic indicators of liquid biofuel production efficiencyat 12% discount rate are presented in Table 4. For the given prices ofelectricity and thermal power, the rape-seed oil CHP plant isefficient, biodiesel (RME) CHP plant is not profitable, while flashpyrolysis oil and naphtha CHP plants are very efficient.

The feasibility study for the combined heat and powergeneration using the slow pyrolysis (EDDITh process, plant size18.6 MW–3.721 kWe, 13,016 kWth) is based on the assumptionsdefined in [28–32]. The duration of construction phase is 2 years,while operating life of the plant is 30 years. The total investmentcosts are 8,640,856 s, while the operating costs are 4,059,445 s.The price of electricity for all CHP plants using gaseous fuels is 13 c/kWh, thermal energy (3 c/kWh) and wood chips (80 s/t found in[32]). The plant is using 45,000 tons of wood chips per annum andwood chips costs constitute the majority of operating costs. Theinvestment costs for all CHP plants are financed using a 20 yearslong-term loan, with constant principal, 2 years grace period and5.5% interest.

The feasibility study for a CHP plant based on gasification fromwood is based on data found in [29]. The construction phase takes 2years and production phase – 30 years. The original plant size is

Table 3CHP plants using liquid fossil and bio-fuels – basic data.

Parameter Rape-seed oil RME Flash pyrolysis oil Naphtha

Plant size (gross, MW) 18.6 18.6 18.6 18.6

Electricity (MWe) 5.58 5.58 5.58 5.58

Thermal (MWth) 11.16 11.16 11.16 11.16

Construction (years) 2 2 2 2

Operating life (years) 30 30 30 30

Investment costs (s) 6,582,885.55 6,698,172.78 6,358,034.64 6,316,368.02

Operating costs (s) 7,559,591.96 8,806,361.75 5,106,673.00 4,652,128.00

Fuel consumption (tone/year) 11,741 11,663 29,486 9558

Electricity production (kWh/year) 41,850,000 41,850,000 41,850,000 41,850,000

Thermal power production (kWh/year) 83,700,000 83,700,000 83,700,000 83,700,000

Electricity price 13 13 13 13

Thermal power price (c/kWh) 3 3 3 3

Table 4Dynamic indicators for CHP plants using liquid biofuels.

Indicator Rape-seed oil RME Flash pyrolysis oil Naphtha

Net present value (s) �3,271,339.69 �12,348,708.41 10,544,420.28 13,967,528.66

Internal rate of return (%) 4.37 �119.79 34.17 41.15

Normal payback (years) 17 33 4 3

Dynamic payback (years) 33 33 5 4

Relative NPV �0.55 �2.08 1.78 2.36

Critical point (years) 18 33 3 3


75 MWe, which is scaled down to 6.70 MWe with the heat to powerratio of 1.5 and overall efficiency of 90%. The total investment costsare 10,136,545.70 s, while the operating costs are 4,208,984 swith wood chips costs representing the main part. The plant isusing 46,650 tons of wood chips per year.

The feasibility study for a CHP plant based on gasification fromcoal is based on the same data as for the CHP plant based ongasification from wood. The total investment costs in this case are9,915,419.58 s, while the operating costs are 1,796,699 s withcoal costs representing the main part. The plant is using 29,327tons of coal per year (45 s/t found in [33]).

The feasibility study for a waste methanization CHP plant isbased on data found in [34]. The plant size is scaled up to 18.6 MWwith the heat and power efficiency of 58% and heat to power ratioof 1.3. The planed duration of construction is 2 years and operationlife is 30 years. The total investment costs are 20,358,425 s, whileoperating costs are 1,449,000 s. The plant is using 184,650 tons oforganic municipal waste per year with a gate fee of 45 s/t [35].Unlike the other CHP plants where the sales revenue is constitutedfrom selling electricity and thermal power, a large share of salesrevenue for waste methanization CHP plant is contributed to thegate fee for organic municipal waste.

The feasibility study for a Combined Cycle Gas Turbine (CCGT)plant is based on data found in [36]. The plant size is 18.6 MW with

Table 5CHP plants using gaseous fossil and bio-fuels – basic data.

Parameter Slow pyrolysis Gasification fro

Plant size (gross, MW) 18.6 18.6

Electricity (MWe) 3.7 6.7

Thermal (MWth) 13.0 10.0

Construction (years) 2 2

Operating life (years) 30 30

Investment costs (s) 8,656,644 10,136,545.70

Operating costs (s) 909,445 4,208,984

Fuel consumption 45,000 46,650

Electricity production (kWh/year) 27,907,500 50,220,000

Thermal power production (kWh/year) 97,620,000 75,330,000

Electricity price 13 13

Thermal power price (c/kWh) 3 3

the heat and power efficiency of 91.3% and heat to power ratio of0.8. The planed duration of construction is 2 years and operationlife is 30 years. The total investment costs are 23,203,046.36 s,while operating costs are 5,412,785 s. The plant is using13.55 Mm3 of natural gas with the price of 10 s/GJ [37].

Some basic data from the five feasibility studies for CHP plantsusing gaseous fossil and bio-fuels are summarized and presentedin Table 5.

The dynamic indicators of gaseous fuel CHP productionefficiency at 12% discount rate are presented in Table 6. All fiveCHP plants are economically efficient. It seems that the CHP plantusing waste methanization is the most efficient, which is caused bythe fact that in this case we do not have fuel costs, but revenuescoming from the gate fee for the municipal organic waste.Furthermore, the heat to power ratio for slow pyrolysis CHP plantis 3.5, while for CCGT is 0.8. When we take the same heat to powerratios for all five CHP plants (1.5) then waste methanization CHPplant is the most efficient, followed by gasification from coal, thenslow pyrolysis, gasification from wood and the last is CCGT.

From the financial point of view, CHP plants using gaseous fuelsgenerally show better performance than CHP plants using liquidfuels. Hereby, CHP plant based on gasification from coal is the bestranked followed by the CHP plants using gasification from wood,naphtha, flash pyrolysis oil, waste methanization, slow pyrolysis,

m wood Gasification from coal Waste methan. CCGT

18.6 18.6 18.6

6.7 4.7 9.3

10.0 6.1 7.4

2 2 2

30 30 30

9,915,419.58 20,358,425 23,203,046

1,796,699 1,449,000 1,449,000

29,327 184,650 13.55

50,220,000 35,250,000 70,049,925

75,330,000 45,750,000 57,313,575

13 13 13

3 3 3

Table 6Dynamic indicators for CHP plants using liquid biofuels.

Indicator Slow pyrolysis Wood Coal Waste methan. CCGT

Net present value (s) 8,301,796 18,369,072 32,643,150 33,263,713 12,221,028

Internal rate of return (%) 22.68 37.72 56.64 23.32 19.49

Normal payback (years) 5 4 3 5 6

Dynamic payback (years) 8 4 3 7 9

Relative NPV 0.98 3.00 3.33 0.81 0.53

Critical point (years) 3 3 3 3 3


natural gas, rape-seed oil and RME. When comparing fossil andbio-fuels, then, with the exception of natural gas, CHP plants usingfossil fuels (e.g. coal, naphtha) are better ranked than those usingbio-fuels.

5. Appraisal using green accounting standards

Although financial appraisal of various industrial-scale CHPplants provides a good basis for their comparison, it still does nottake into account all important factors. One of these factors isrelated to the environmental protection and the goals of the Kyotoprotocol. To conform to these goals the EU has introducedenvironmental taxes [38] as a set of excise duties. Environmentaltaxes include energy taxes, transportation taxes and pollution/resource taxes, but only energy taxes and pollution taxes can beapplied in our case.

Energy taxes also include the CO2 taxes and can be applied onCHP plants using different fossil fuels (e.g. naphtha, coal andnatural gas). On the other hand pollution taxes can be applied onmeasured or estimated emissions to air and water, management ofsolid waste and noise. In our case the pollution taxes can be appliedon SO2 and NOx emissions. EU has adopted a minimum excise dutyfor energy taxes for various fossil fuels, but no similar duty hasbeen adopted for the pollution taxes.

To reevaluate the profitability of three CHP plants using fossilfuels (naphtha, coal, natural gas) by taking into account relevantenvironmental costs (‘‘green accounting’’) we will use PEGAS
[(Fig._4)TD$FIG]
Fig. 4. PEGAS s

(Project Evaluation and Green Accounting System). PEGAS (Fig. 4)is based on Environmental Management Accounting (EMA) [39],UNIDO methodology, which takes into consideration various costsand benefits related to environmental management and protectionincluding waste and emission treatment, prevention and environ-mental management, material purchase value of non-productoutput, processing costs on non-product output, environmentalincentives, etc.

Regarding the energy taxes we will examine the impacts ofminimum excise duty [40] adopted by EU, but also the maximumduty applied in some EU countries on naphtha, coal and naturalgas. The minimum excise duty applied on naphtha is 15 s/t, forcoal and natural gas – 0.15 s/GJ, while the maximum ones areapplied in Denmark, 330.55 s/t for naphtha and 7.84 s/GJ for coaland natural gas.

Minimum excise duty is still not adopted for pollution taxes atthe EU level, hence each EU country applies its own taxes. Forinstance, in France the tax on NOx is 35 s/t and on SO2 – 22 s/t[41].

Finally the ash disposal costs vary from country to countrybased on the average ash haul distance. In case of Canada and theaverage ash haul distance of 50 km [42] the ash disposal costs areestimated at 0.35 s/MWh.

The estimated environmental taxes and ash disposal costs forCHP plants using naphtha, coal and natural gas are given in Table 7.The estimation has been performed based on the followingassumptions: CHP plants are producing annually 502,200 GJ, or

creenshot.

Table 7Estimated taxes and ash disposal costs for CHP plants using fossil fuels.

Naphtha Coal Natural gas

Energy tax (minimum

excise duty)

143,370 75,330 75,330

Energy tax (maximum

excise duty)

3,154,140 3,937,248 3,937,248

NOx tax 742 2651 1045

SO2 tax 1749 2326 3

Ash disposal costs n/a 10,264 n/a

Table 8Dynamic indicators for CHP plants using fossil fuels (minimum excise duty).


Net present value (s) 13,113,591.18 32,112,906.08 11,773,876.43




Relative NPV 2.21 3.27 0.51


Table 9Dynamic indicators for CHP plants using fossil fuels (maximum excise duty).


Net present value (s) �4,758,283.78 9,503,459 �11,062,272.15




Relative NPV �0.80 0.97 �0.48



139,500,000 kWh and emitting NOx (naphtha – 0.152 g/kWh, coal– 0.543 g/kWh, natural gas 0.214 g/kWh) and SO2 (naphtha –0.570 g/kWh, coal – 0.758 g/kWh, natural gas – 0.001 g/kWh).

Table 8 contains the dynamic indicators for CHP plants usingnaphtha, coal and natural gas in case of energy tax with minimumexcise duty.

The results presented in Table 8 suggest that the application ofthe minimum excise duty has no effect on the ranking of CHPplants, and it does not stimulate the use of biofuels.

Table 9 represents the dynamic indicators in case of maximumexcise duty.

Here the applied energy taxes have substantial impact on theranking of CHP plants. CHP plant using gasification from wood isnow the best ranked followed by the CHP plants using flashpyrolysis oil, gasification from coal, waste methanization, slowpyrolysis, natural gas, rape-seed oil, naphtha and RME. Two CHPplants using biofuels are the best ranked, followed by thegasification from coal, which is still very competitive althoughvery high energy taxes are applied.

6. Demand side effects

The demand side effects represent the focal point of themajority of socio-economic studies, because they are easy todefine, and are most important to regional developers and decisionmakers. The most important demand side impacts are onemployment and regional income. They can be divided into:

� Direct effects� Indirect effects� Induced effects� Displacement effects

These effects can be used to represent some economic andsocial criteria from the socio-economic study:

� Economic gain (net additional profit)� Income (net additional labor income)� Economic activity (proportional to net additional income/profit)� Related industry support (proportional to operating/annualized

capital costs excluding labor costs)� Employment generated (total net additional jobs)� Avoided rural depopulation (proportional to net additional direct

jobs)

The demand side effects will be evaluated on an example ofindustrial-scale, 18.6 MW CHP plant. Different cases will beanalyzed for various liquid and gaseous fuels.

In case of CHP plants using rape-seed oil and biodiesel, theproduction of rape-seed should be also taken into consideration.For the needs of this analysis, the rape-seed production costs inGermany have been taken into account [19]. The assumed yield is3.5 t/ha, total variable costs are 1050 s/ha and EU is providingsubsidies of 45 s/ha for energy crops. The total area needed forrape-seed production is about 11,000 ha, the total variable costsare 11,550,000 s per year, of which labor costs are approximately2,887,500 s and equipment and other costs are 8,662,500 s.Taking the agricultural gross wages to be 24,000 s/year, and theturnover/labor ratio for equipment and other costs to be120,000 s, we come to an estimate of 120.3 direct jobs and72.2 indirect jobs. There are no displacement jobs, because energycrops can be planted on set aside land.

The net additional labor income (5,053,500 s) can be calculatedif the costs for direct (2,887,500 s) and indirect jobs (2,166,000)are summarized. The costs for indirect jobs are taken to be30,000 s per year. There is no profit in the rape-seed production soto calculate the net additional income/profit (4,558,500 s), fromthe net additional labor income (5,053,500 s) subsidies(495,000 s) should be subtracted.

The CHP plants using rape-seed oil and biodiesel, are usingapproximately 12,000 tons of rape-seed oil per year. For each CHPplant, 16 small-scale (750 tons) rape-seed extraction plants areneeded. Annualized capital costs are 93,067 of which 9307 s areannualized direct labor costs and 83,760 s are annualized civilworks and equipment costs. Labor costs are 333,600 s, and energycosts are 1,950,000 s. Taking that gross wages for rape-seedextraction plant are 24,000 s, for energy production – 30,000 s,and that the turnover/labor ratio is 120,000 s, we get 14.3 directjobs and 16.9 indirect jobs. The net additional labor income is840,600 s, average profit is 78,608 s and net additional income/profit is 919,208 s.

The biodiesel CHP plant is using 12,000 tons of biodiesel peryear. A biodiesel production plant with 100,000 tons capacitywould satisfy the needs of 8.33 biodiesel CHP plants. Theannualized value for capital costs is 25,011 s, of which 2501 sfor annualized direct labor costs and 22,510 s for annualized civilworks and equipment costs. Labor costs are 216,086 s, whileenergy costs are 483,794 s. Taking that labor costs are 30,000 sand that the turnover/labor ratio is 120,000 s, we get 7.3 directjobs and 4.2 indirect jobs. The net additional labor income is342,086 s, average profit is 754,742 s and net additional income/profit is 1,096,828 s.

The liquid biofuel CHP plant has annualized capital costs at219,430 s, of which 21,943 s are annualized direct labor costs and197,487 s for annualized civil works and equipment costs. Laborcosts are 242,328 s, while material costs are 108,511 s. The grosswages in energy production are 30,000 s and the turnover/laborratio is 120,000 s, hence we get 8.8 direct jobs and 2.5 indirectjobs. Net additional labor income for rape-seed oil CHP plant is

Table 10Demand side effects for rape-seed oil CHP plant.

Rape-seed production Oil extraction CHP plant Total

Operating/annualized capital costs (s) 8,622,500 2,033,760 305,998 10,962,258

Net additional labor income (s) 5,053,500 840,600 317,328 6,211,428

Net additional profit (s) �495,000 78,608 42,961 �373,431

Net additional income/profit (s) 4,558,500 919,208 360,289 5,837,997

Net additional direct jobs 120.3 14.3 8.8 143.4

Net additional indirect jobs 72.2 16.9 2.5 91.6

Net additional induced jobs 0 0 0 43.8

Total net additional jobs 192.5 31.2 11.3 278.8

Table 11Demand side effects for biodiesel (RME) CHP plant.

Rape-seed production Oil extract. Biodiesel product. CHP plant Total

Operating/annual. capital costs (s) 8,622,500 2,033,760 506,304 292,535 11,455,099

Net additional labor income (s) 5,053,500 840,600 342,086 314,328 6,550,514

Net additional profit (s) �495,000 78,608 754,742 �1,177,141 �838,791

Net additional income/profit (s) 4,558,500 919,208 1,096,828 �862,813 5,711,723

Net additional direct jobs 120.3 14.3 7.3 8.8 150.7

Net additional indirect jobs 72.2 16.9 4.2 2.4 95.7

Net additional induced jobs 0 0 0 0 42.8

Total net additional jobs 192.5 31.2 11.5 13.0 289.2


317,328 s, average profit is 42,961 s and net additional income/profit is 360,289 s.

The demand side effects for the rape-seed oil CHP plant aregiven in Table 10. The total additional expenditures retained fromadditional income/profit, taking that 75% of net additional income/profit is spent domestically, reach 4,378,498 s. If the averageturnover/labor ratio is 100,000 s, then we have additional 43.8induced jobs.

The net additional labor income for the biodiesel (RME) CHPplant is 314,328 s, average profit is – 1,177,141 s, and netadditional income/profit is – 862,813 s.

The demand side effects for the biodiesel CHP plant arepresented in Table 11. Assuming that 75% of net additional income/profit is spent domestically, total additional expenditures retainedfrom additional income/profit reach 4,283,792 s. If the averageturnover/labor ratio is 100,000 s, then we have additional 42.8induced jobs.

The flash pyrolysis oil CHP plant is using 29,500 tons of flashpyrolysis oil per year. If a plant with the capacity of 2000 tons isused for the production of flash pyrolysis oils, then 14,75 plants areneeded for the production of 29,500 tons. The annualized capitalcosts are 331,580 s, of which 33,158 s for annualized direct laborcosts and 298,422 s for annualized civil works and equipmentcosts. Labor costs are 611,122 s, and energy/material costs are1,327,721 s. Taking that gross wages are 30,000 s, and that inenergy/material production the turnover/labor ratio is 120,000 s,we get 21.5 direct jobs and 13.6 indirect jobs. The net additional

Table 12Demand side effects for flash pyrolysis CHP plant.

Flash pyrolysis oil pr

Operating/annualized capital costs (s) 1,626,143

Net additional labor income (s) 1,052,280

Net additional profit (s) 1,060,537

Net additional income/profit (s) 2,112,817

Net additional direct jobs 21.5

Net additional indirect jobs 13.6

Net additional induced jobs 0

Total net additional jobs 32.6

labor income is 1,052,280 s, average profit is 1,060,537 s and netadditional income/profit is 2,112,817 s.

The net additional labor income for the CHP plant using flashpyrolysis oil is 314,328 s, average profit is 3,359,547 s, and netadditional income/profit is 3,673,875 s.

The demand side effects for the flash pyrolysis CHP plant arepresented in Table 12. Assuming that 75% of net additional income/profit is spent domestically, total additional expenditures retainedfrom additional income/profit reach 3,626,643 s. If the averageturnover/labor ratio is 100,000 s, then we have additional 36.3induced jobs.

The naphtha-based CHP plant has annualized capital costs at210,546 s, of which 21,055 s are annualized direct labor costs and189,491 s for annualized civil works and equipment costs. Laborcosts are 242,328 s, while material costs are 108,511 s. The grosswages are 30,000 s and the turnover/labor ratio is 120,000 s,hence we get 8.8 direct jobs and 2.5 indirect jobs. The netadditional labor income for the naphtha-based CHP plant is338,383 s, the average profit is 2,977,092 s, and net additionalincome/profit is 3,315,475 s. Assuming that 75% of net additionalincome/profit is spent domestically, total additional expendituresretained from additional income/profit reach 2,486,606 s. If theaverage turnover/labor ratio is 100,000 s, then we have additional24.9 induced jobs.

Table 13 gives the summary of the estimated demand sideeffects for CHP plants using different liquid fossil and bio-fuels. Asmay be expected, from the national point of view, the most

oduction CHP plant Total

292,535 1,918,678

314,328 1,366,608

2,408,380 3,468,917

2,727,708 4,835,525

8.8 30.3

2.4 16.0

0 36.3

11.2 82.6

Table 13Total demand side effects for CHP plants using liquid fuels.

Rape-seed oil Biodiesel (RME) Flash pyrol. oil Naphtha

Operating/annualized capital costs (s) 10,962,258 11,455,099 1,918,678 298,002

Net additional labor income (s) 6,211,428 6,550,514 1,366,608 338,383

Net additional profit (s) �373,431 �838,791 3,468,917 2,977,092

Net additional income/profit (s) 5,837,997 5,711,723 4,835,525 3,315,475

Net additional direct jobs 143.4 150.7 30.3 8.8

Net additional indirect jobs 91.6 95.7 16.0 2.5

Net additional induced jobs 43.8 42.8 36.3 24.9

Total net additional jobs 278.8 289.2 82.6 36.2


efficient seems to be the combined heat and power productionusing biodiesel (RME). It shows the best performance according tosocio/economic criteria (income, economic activity, related indus-try support, employment generated, avoided rural depopulation),except for the economic gain where CHP plants using flashpyrolysis oil and naphtha are better. The CHP production usingflash pyrolysis oil or naphtha shows better performance than rape-seed oil CHP production concerning economic gain, while rape-seed oil CHP production is better than flash pyrolysis oil or naphthaCHP production in case of income, support of related industry,economic activity, employment generated and avoided ruraldepopulation. Finally, CHP production based on flash pyrolysisoil is superior to naphtha CHP production according to allestimated socio/economic parameters. These results are actuallynot surprising, having in mind that CHP plants that use biodieselrequire an extensive agricultural production, but also theextraction of rape-seed oil and biodiesel production. Relativelysmall economic gain in case of rape-seed oil and biodiesel CHPplants is compensated by the large net additional labor incomefrom the labor intensive agricultural production. Even at thepresent level of electricity (13 c/kWh) and thermal power prices(3 c/kWh), CHP production using liquid biofuels is profitable and,from the national point of view, very attractive.

The CHP plant based on gasification from wood process hasannualized capital costs at 337,885 s, of which 33,789 s areannualized direct labor costs and 304,096 s for annualized civilworks and equipment costs. Labor costs are 248,517 s, whilematerial/utility costs are 228,467 s. The gross wages are 30,000 sand the turnover/labor ratio is 120,000 s, hence we get 9.4 directjobs and 4.4 indirect jobs. The net additional labor income for theCHP plant based on gasification from wood process is 414,306 s,the average profit is 4,138,484 s, and net additional income/profitis 4,552,790 s. Assuming that 75% of net additional income/profitis spent domestically, total additional expenditures retained fromadditional income/profit reach 3,414,593 s. If the averageturnover/labor ratio is 100,000 s, then we have additional 34.1induced jobs.

The CHP plant based on gasification from coal process hasannualized capital costs at 330,514 s, of which 33,051 s areannualized direct labor costs and 297,463 s for annualized civilworks and equipment costs. Labor costs are 248,517 s, whilematerial/utility costs are 228,467 s. The gross wages are 30,000 sand the turnover/labor ratio is 120,000 s, hence we get 9.4 directjobs and 4.4 indirect jobs. The net additional labor income for theCHP plant based on gasification from coal process is 413,568 s, theaverage profit is 6,522,997 s, and net additional income/profit is6,936,565 s. Assuming that 75% of net additional income/profit isspent domestically, total additional expenditures retained fromadditional income/profit reach 5,202,423 s. If the averageturnover/labor ratio is 100,000 s, then we have additional 52induced jobs.

The waste methanization CHP plant has annualized capitalcosts at 1,378,991 s, of which 137,899 s are annualized direct

labor costs and 1,241,092 s for annualized civil works andequipment costs. Labor costs are 1,137,889 s, while materialcosts are 3,190,092 s. The gross wages are 30,000 s and theturnover/labor ratio is 120,000 s, hence we get 37.9 direct jobsand 26.6 indirect jobs. The net additional labor income for thewaste methanization CHP plant is 1,935,889 s, the average profitis 9,368,841 s, and net additional income/profit is 11,304,730 s.Assuming that 75% of net additional income/profit is spentdomestically, total additional expenditures retained from addi-tional income/profit reach 8,478,548 s. If the average turnover/labor ratio is 100,000 s, then we have additional 84.8 induced jobs.

The slow pyrolysis CHP plant (EDDITh process) has annualizedcapital costs at 288,028 s, of which 28,803 s are annualized directlabor costs and 259,225 s for annualized civil works andequipment costs. Labor costs are 224,328 s, while material/utilitycosts are 235,117 s. The gross wages are 30,000 s and theturnover/labor ratio is 120,000 s, hence we get 8.4 direct jobs and4.1 indirect jobs. The net additional labor income for the slowpyrolysis CHP plant is 376,131 s, the average profit is 3,344,058 s,and net additional income/profit is 3,720,189 s. Assuming that75% of net additional income/profit is spent domestically, totaladditional expenditures retained from additional income/profitreach 2,790,142 s. If the average turnover/labor ratio is 100,000 s,then we have additional 27.9 induced jobs.

The Combined Cycle Gas Turbine (CCGT) CHP plant hasannualized capital costs at 773,449 s, of which 77,345 s areannualized direct labor costs and 696,104 s for annualized civilworks and equipment costs. Labor costs are 190,804 s, whilematerial/utility costs are 199,981 s. The gross wages are 30,000 sand the turnover/labor ratio is 120,000 s, hence we get 8.9 directjobs and 7.5 indirect jobs. The net additional labor income for theCCGT CHP plant is 415,804 s, the average profit is 4,151,920 s,and net additional income/profit is 4,567,724 s. Assuming that75% of net additional income/profit is spent domestically, totaladditional expenditures retained from additional income/profitreach 3,425,793 s. If the average turnover/labor ratio is 100,000 s,then we have additional 34.3 induced jobs.

Table 14 gives a summary of total demand side effects for CHPplants using gaseous fossil and bio-fuels. It is obvious that wastemethanization CHP plant is superior according to all parameters tothe other four options, which is caused by the fact that instead ofheaving biofuel costs, in case of waste methanization, we haveincome for gate fee. According to all criteria the second best is thegasification from coal process, followed by Combined Cycle GasTurbine (CCGT – natural gas), gasification from wood and finallyslow pyrolysis (EDDITh) process.

Comparing socio/economic parameters of CHP productionusing liquid and gaseous biofuels, it can be generally said thatCHP production using liquid biofuels looks superior to CHPproduction using gaseous fuels concerning related industrysupport, income, avoided rural depopulation and in generatedemployment, while CHP production using liquid biofuels seemsbetter in terms of economic gain and economic activity. On one

Table 14Total demand side effects for CHP plants using gaseous fuels.

Wood Coal Waste methan. Slow pyrolysis CCGT

Operating/annualized capital costs (s) 532,563 525,930 4,431,184 494,342 896,085

Net additional labor income (s) 414,306 413,568 1,935,889 376,131 415,804

Net additional profit (s) 4,138,484 6,522,997 9,368,841 3,344,058 4,151,920

Net additional income/profit (s) 4,552,790 6,936,565 11,304,730 3,720,189 4,567,774

Net additional direct jobs 9.4 9.4 37.9 8.4 8.9

Net additional indirect jobs 4.4 4.4 26.6 4.1 7.5

Net additional induced jobs 34.1 52.0 84.8 27.9 34.3

Total net additional jobs 47.9 65.8 149.3 40.4 60.7


hand, CHP production using gaseous biofuels is very profitablecausing high economic activity, while on the other hand, it does nothave strong influence on agricultural sector, related industry andemployment as CHP production using liquid biofuels has.

When comparing socio/economic parameters of CHP produc-tion using fossil and bio-fuels, we can notice that the onlyimportant advantage of fossil fuels is in the achieved economicgain (profitability). According to this parameter, naphtha is rankedthe second best for liquid fuels, while coal and natural gas areranked the second and third best for gaseous fuels. However, eventhis advantage of fossil fuels will probably be diminished soon withthe increase of fossil fuel prices.

7. Fuel selection in CHP production

In case when several liquid and gaseous, fossil and bio-fuels areconsidered for the combined heat and power (CHP) production, it isvery important to define a set of criteria that will be used for theircomparison and for the selection of the best ones.

The criteria for fuel selection in CHP production can be dividedinto four main categories:

� Technological� Financial� Socio-Economic� Environmental

The technological criteria are mainly related to fuel properties,and in our case the energy content (LHV expressed in MJ/kg, MJ/t,MJ/m3) and the non-renewable energy consumed (in J/J of biofuelproduced) are the most interesting.

Many static and dynamic criteria can be obtained from theclassical financial appraisal of an investment project. FIDES, a toolfor the financial appraisal provides 14 static financial parameters(e.g., net profit to equity, long-term debt to net worth, sales to totalcapital investment, investment to personnel cost, etc.), 5 dynamicparameters (net present value, internal rate of rentability, normaland dynamic payback period, NPV ratio), and 13 risk parameters(e.g., mean NPV and IRR, standard deviation for NPV and IRR, zerorisk equivalent, d-value, etc.).

Various socio-economic studies that discuss the impacts ofRenewable Energy Technologies (RET) [43,44] stress differentaspects of the complex problem of socio-economic analysis. Themethodologies used for the preparation of the socio-economicanalysis can be divided into two broad categories qualitative andquantitative. The qualitative methodologies give the description ofthe main impacts of the technology on the economy and society atdifferent levels (national, regional, local) and can provide subjec-tive socio-economic criteria. On the other hand the quantitativemethodologies offer quantified measures for the economic andsocial impacts. Some of the most popular quantitative methodolo-gies are:

� General equilibrium model [45]� Cash-flow analysis [16]� Externality analysis [46]� Keynesian economic model [47]

There are also many software tools based on these quantitativemethodologies for the preparation of socio-economic studies:

� SAFIRE [48]� ABM [49]� ELVIRE [50]� BIOSEM [51]� INSPIRE [52]� EXTERNE [53]

However all these quantitative methodologies and softwaretools are resource intensive in gathering data and used only inprojects whose sole task is the preparation of the required socio-economic studies.

The national (regional) economic criteria commonly used insocio-economic studies are: economic gain, incomes, economicactivity, related industry support, employment generated, unem-ployment avoided by the production of biofuel and CHP. Socialcriteria are: impacts on education and health (mortality, morbiditycaused by nitrate and sulfate aerosols), quality of life, avoided ruraldepopulation, rural diversification and land management.

Having in mind that the quantification of socio-economicparameters is related with extensive efforts and costs needed forgathering the vast quantity of data, in the absence of thequantitative values for the comparison of socio-economic param-eters it is possible to use the qualitative values to express theirimpacts (e.g. 1: VERY HIGH, 2: HIGH, 3: MEDIUM, 4: LOW, 5: VERYLOW).

The environmental criteria [54] include air pollutants (CO2, CO,NOx, SO2, particulates, volatile organic compounds), liquidpollutants (AOX, BOD5, N, P, COD, inorganic salts), solid wastes(process wastes, ashes, overburden, FGD residuals), biodiversity,visual and noise impacts. The environmental criteria usuallyinclude the parameters related with the reduction of greenhousegases emission, but in case of renewable fuels (such as biofuels) it isconsidered that they do not produce extra emission of greenhousegases.

Among various fossil and bio-fuels, for this paper the followingliquid fuels used in CHP production have been compared:

� Vegetable oils (rape-seed)� Esters (Rape-seed Methyl Ester – RME)� Flash pyrolysis oils� Naphtha

and the following processes used in CHP production based on gaseousfuels:

Table 15Criteria parameters for gaseous liquid fuels.

Criterion Min/Max Weight p

CO (g/kWh) Minimized 100 0.50

CO2 (g/kWh) Minimized 100 200.00

HC (g/kWh) Minimized 100 0.50

NOx (g/kWh) Minimized 100 1.00

Particulates (g/kWh) Minimized 80 0.15

SO2 (g/kWh) Maximized 100 0.50

Dynamic payback (years) Maximized 50 10.00

Internal rate of return (%) Maximized 60 20.00

NPV ratio Maximized 50 2.00

Net present value Maximized 60 10,000,000.00

Normal payback (years) Maximized 40 5.00

Coefficient of variation – IRR (%) Minimized 20 10.00

Coefficient of variation – NPV (%) Minimized 20 100.00

Delta value – NPV (%) Minimized 20 10.00

Interval of variation – IRR (%) Minimized 20 10.00

Interval of variation – NPV Minimized 20 5,000,000.00

Mean IRR (%) Maximized 20 20.00

Mean NPV Maximized 20 10,000,000.00

Probability threshold – IRR (%) Minimized 10 10.00

Probability threshold – NPV (%) Minimized 10 10.00

Standard deviation – IRR (%) Minimized 20 1.00

Standard deviation – NPV Minimized 20 500,000.00

Zero risk equivalent – NPV Maximized 20 10,000,000.00

Current assets to current liabilities Maximized 10 20.00

Investment to personnel cost Maximized 10 0.00

Long-term debt to net worth Minimized 10 2.00

Net cash flow to long-term debt service Maximized 10 0.00

Net cash flow to long-term liabilities Maximized 10 0.50

Net cash flow to total sales Maximized 10 0.50

Net profit + interest to investment (%) Maximized 10 50.00

Net worth to total liabilities (%) Maximized 10 50.00

Sales to total capital investment Maximized 10 0.50

Economic activity Maximized 100 4,000,000.00

Economic gain Maximized 100 5,000,000.00

Employment generated Maximized 90 100.00

Incomes Maximized 90 4,000,000.00

Related industry support Maximized 90 7,000,000.00

Avoided rural depopulation Maximized 80 100.00

Land management Maximized 50 4.00

Quality of life Maximized 70 4.00

Rural diversification Maximized 50 4.00

Availability Maximized 80 4.00

Energy content (LHV – MJ/kg) Maximized 30 20.00

Non-renewable energy consumed Minimized 30 1.00


� Gasification from wood� Gasification from coal� Waste methanization� Slow pyrolysis (EDITTh process)� Combined Cycle Gas Turbine (CCGT – natural gas)

To these fuels different technological, financial, socio-economicand environmental criteria can be applied in the process of Multi-Criteria Analysis (MCA). However, in practice it proved to be a verydifficult task to collect the information about all these criteria, sofor the purpose of this paper only criteria presented in Table 17 areused in MCA. For MCA we used the PROMETHEE II method [55] andlinear preference function, while specific parameters for eachcriterion are presented in Table 15.

The criteria values for liquid fuels used for fuel selection in CHPproduction are given in Table 16, and the values for gaseous fuelsare presented in Table 17.

The MCA used in fuel selection for CHP production has beenperformed using WISE Choice [56]. WISE Choice is an Internet/Intranet application aimed at helping decision-makers to make adesirable choice among different fossil and bio-fuels in CHPproduction using multiple criteria.

Generally speaking, liquid biofuels show better socio-economicperformance than gaseous biofuels, while gaseous biofuels are

better in financial criteria. These results are expected because CHPgeneration using liquid biofuels includes crop and biofuelproduction, which from one hand enhances socio-economicparameters, but on the other hand increases the costs of CHPproduction.

The results of Multi-Criteria Analysis (MCA) for CHP productionfrom fossil and bio-fuels using 44 criteria whose parameters aregiven in Table 17 are presented in Fig. 5. Although the comparisonof different fuels in CHP production is performed according to all44 criteria, this comparison may be unfair, because 26 of them areactually financial parameters (dynamic, static and risk). Thereforefinancial indicators have a substantial influence on the overall MCAresults, and maybe there is no wonder that the CHP productionbased on gasification from coal and from wood are the best ranked,followed by waste methanization, rape-seed oil, RME, naphtha,natural gas, flash pyrolysis oil and slow pyrolysis. Anotherobservation is that CHP production based on gaseous fuels aregenerally better ranked (three of them are best ranked), than theCHP production based on liquid fuels.

However, if the number of financial parameters is reduced to areasonable number (5 dynamic parameters), the ranking willchange. Now, thanks to the superior performance regarding socio-economic parameters, CHP production based on two liquidbiofuels (rape-seed oil and RME) are better ranked than the three

Table 16Parameters for liquid fuel selection in CHP production.

Criterion Rape-seed oil RME Flash pyrolysis oil Naphtha

Technological criteria

Energy content (LHV – MJ/kg) 37.45 37.70 16.70 44.00

Non-renewable energy consumed 0.55 0.95 1.22 0

Availability 5 3 1 5

Financial criteria

Static criteria

Net profit + interest to investment (%) �1.74 �16.92 38.09 47.88

Net worth to total liabilities (%) �7.04 �30.37 37.91 44.15

Long-term debt to net worth 12.56 2.11 1.52 1.19

Current assets to current liabilities 1.55 0.42 11.17 17.18

Net cash flow to long-term liabilities 0.05 0.00 0.42 0.51

Net cash flow to long-term debt service 0.42 0.00 3.79 4.63

Sales to total capital investment 1.21 1.19 1.36 1.26

Investment to personnel cost 46.22 47.02 45.25 44.35

Net cash flow to total sales 0.04 �0.12 0.30 0.41

Dynamic criteria

Net present value �3,271,339.69 �12,348,708.41 10,544,420.28 13,967,528.66

Internal rate of return (%) 4.37 �119.79 34.17 41.15

Normal payback (years) 17 33 4 3

Dynamic payback (years) 33 33 5 4

NPV ratio �0.55 �2.08 1.78 2.36

Risk criteria

Mean NPV �3,299,045.05 �12,374,808.60 10,568,964.77 13,916,624.26

Standard deviation – NPV 1,939,058.61 2,043,210.39 1,913,142.49 1,617,683.54

Coefficient of variation – NPV (%) 58.78 35.19 18.10 11.62

Interval of variation – NPV 12,988,722.12 14,370,386.77 12,514,110.95 10,611,081.45

Probability threshold – NPV (%) 96.20 99.70 0.00 0.00

Mean IRR (%) �16.91 �179.64 34.55 41.10

Standard deviation – IRR (%) 627.17 1,802.05 6.00 5.20

Coefficient of variation – IRR (%) 3,708.49 11,446.48 17.35 12.65

Interval of variation – IRR (%) 20,632.27 172,665.99 35.02 31.10

Probability threshold – IRR (%) 95.80 97.20 0.00 0.00

Zero risk equivalent – NPV �1,000.000 �1,000.000 10,404,295.57 13,827,581.13

Delta value – NPV (%) 69.69 82.78 1.56 0.64

Socio/economic criteria

Economic criteria

Economic gain �373,431 �838,791 3,468,917 2,977,092

Incomes 6,211,428 6,550,514 1,366,608 338,383

Economic activity 5,837,997 5,711,723 4,835,525 3,315,475

Related industry support 10,962,258 11,455,099 1,916,678 298,002

Employment generated 278.8 289.2 82.6 36.2

Social criteria

Quality of life 1 3 5 1

Avoided rural depopulation 143.4 150.7 30.3 8.8

Rural diversification 5 5 3 1

Land management 5 5 1 1

Environmental criteria

CO2 (g/kWh) 150 210 780 256

CO (g/kWh) 0.4389 0.4605 1.0500 0.0517

HC (g/kWh) 0.2710 0.2974 0.9174 0.0107

NOx (g/kWh) 0.9725 0.9753 1.5080 0.1524

Particulates (g/kWh) 0.0760 0.0760 0.1652 0.0571

SO2 (g/kWh) 0.4888 0.4895 1.2548 0.5700


best ranked options from the previous ranking (gasification fromwood, gasification from coal and waste methanization). They arefollowed by naphtha, natural gas, flash pyrolysis oil and slowpyrolysis.

If, on the other hand, environmental criteria are excluded fromMCA, then we will have another ranking of options. Here CHPproduction based on waste methanization is ranked the first basedon superior financial performance, followed by CHP productionbased on rape-seed oil and RME, which are the socio/economicchampions, and gasification from coal, flash pyrolysis oil,gasification from wood, natural gas, slow pyrolysis and naphtha.

In case when, instead of environmental parameters, socio/economic parameters are excluded from the MCA, we will oncemore get a different ranking. Again, CHP production based ongaseous fuels become dominant, with three out of four best options(gasification from wood, gasification from coal, naphtha, naturalgas). The surprising, third place for the CHP production based on

naphtha may be explained by fairly good financial parameters.They are followed then by rapeseed oil, RME, slow pyrolysis, flashpyrolysis oil and waste methanization.

8. Summary of results

Before summarizing the results presented in the previoussections and drawing the conclusions based upon them, it has to bestated once again that the results are only approximate, due to thechronic lack of credible input data. The reasons are threefold: (1)there are no publically available data for real-world, industrial-scale CHP plants using all types of fossil and bio-fuels that can beused for more accurate comparative analysis; (2) there are somepublically available data for CHP plants using different liquid andgaseous fuels, but some of them are for small-, other for large-scaleplants, so they have to be scaled up or down, which again seriouslyaffects the accuracy of the obtained results; (3) the heat to power

Table 17Parameters for gaseous fuel selection in CHP production.

Criterion Wood Coal Waste methaniz. Slow pyrolysis CCGT

Technol. criteria

Energy content (LHV – MJ/kg) 4.75 7.56 18.66 12.22 38.10

Non-renewable energy consumed 0.03 0.00 1.02 0.58 0.00

Availability 5 5 5 5 5

Financial criteria

Static criteria

Net profit + interest to investment (%) 40.02 65.24 23.09 64.18 18.33

Net worth to total liabilities (%) 39.15 52.69 26.99 20.68 20.96

Long-term debt to net worth 1.50 0.89 2.69 3.69 3.70

Current assets to current liabilities 25.35 90.27 76.26 11.02 17.11

Net cash flow to long-term liabilities 0.44 0.67 0.30 0.27 0.24

Net cash flow to long-term debt service 3.94 6.07 2.68 2.43 2.21

Sales to total capital investment 0.87 0.89 0.34 0.73 0.47

Investment to personnel cost 50.80 49.95 58.93 62.91 55.03

Net cash flow to total sales 0.52 0.79 0.81 0.36 0.50

Dynamic criteria

Net present value 18,369,072 32,643,150 33,263,713 8,301,796 12,221,028.43

Internal rate of return (%) 37.72 56.64 23.32 22.68 19.49

Normal payback (years) 4 3 5 5 6

Dynamic payback (years) 4 3 7 8 9

NPV ratio 3.00 3.33 0.81 0.98 0.53

Risk criteria

Mean NPV 18,382,403 32,620,299 33,326,235 8,008,876 12,262,368.71

Standard deviation – NPV 1,736,862 1,678,757 2,504,101 1,288,069 2,164,354.71

Coefficient of variation – NPV (%) 9.45 5.15 7.51 16.08 17.65

Interval of variation – NPV 9,535,596 9,480,512 14,058,004 8,413,169 12,268,762

Probability threshold – NPV (%) 0.00 0.00 0.00 0.00 0.00

Mean IRR (%) 37.91 56.65 23.38 22.74 19.58

Standard deviation – IRR (%) 3.67 3.81 1.09 2.36 1.59

Coefficient of variation – IRR (%) 9.67 6.73 4.67 10.36 8.13

Interval of variation – IRR (%) 19.44 18.90 6.21 15.42 9.37

Probability threshold – IRR (%) 0.00 0.00 0.00 0.00 0.00

Zero risk equivalent – NPV 18,304,103 32,578,362 33,234,315 7,915,455 12,083,287

Delta value – NPV (%) 0.43 0.13 0.28 1.17 1.46

Socio/economic criteria

Economic criteria

Economic gain 4,138,484 6,522,997 9,368,841 3,344,058 4,151,920

Incomes 414,306 413,568 1,935,889 376,131 415,804

Economic activity 4,552,790 6,936,565 11,304,730 3,720,189 4,567,774

Related industry support 532,563 525,930 4,431,184 494,342 896,085

Employment generated 47.9 65.8 149.3 40.4 60.7

Social criteria

Quality of life 3 3 5 3 3

Avoided rural depopulation 9.4 9.4 37.9 8.4 8.9

Rural diversification 3 1 3 3 1

Land management 1 1 1 1 1

Environmental criteria

CO2 (g/kWh) 10 324 270 120 182

CO (g/kWh) 0.0242 0.0399 1.2155 0.9271 0.1703

HC (g/kWh) 0.0036 0.0079 0.6659 0.6645 0.0437

NOx (g/kWh) 0.5348 0.5430 3.5037 1.9370 0.2137

Particulates (g/kWh) 0.0039 0.0694 0.1834 0.1865 0.0649

SO2 (g/kWh) 0.9226 0.7582 0.2836 0.0678 0.0010


ratio is different for the analyzed CHP plants (0.8 for CCGT, 2 forliquid fuel CHP plants, 3.5 for slow pyrolysis and 1.5 for all theothers), with the direct impact on investment costs and revenues –the lower the heat to power ratio, the higher investment costs andrevenues.

However, these results still may be indicative and useful forvarious stakeholders, because they provide different rankings fromdifferent perspectives using some existing standards for financialappraisal, green accounting standards, socio/economic analysisand Multi-Criteria Analysis. The summary of these results is givenin Table 18.

The first ranking of CHP plants is produced based on theirfinancial appraisal. Here gasification from coal is the best ranked,followed by gasification from wood, naphtha, flash pyrolysis oil,etc. It seems that coal is still the cheapest fuel for CHP production,while naphtha is also relatively highly ranked (third), despite itshigh price. The bad profitability results for CCGT plant using

natural gas are probably caused by high investment costs, whichare caused by low heat to power ratio (0.8). The investment costsfor CCGT plant are higher than for waste methanization CHP plant(HP ratio 1.3), two times higher than for the CHP plants based ongasification from wood or coal (HP ratio 1.5), three times higherthan for the slow pyrolysis CHP plant (HP ratio 3.5) and even fourtimes higher than for the liquid fuel CHP plants (HP ratio 2).According to financial appraisal CHP plants using rapeseed oil andRME are the lowest ranked, which is caused by the high prices ofrapeseed oil and RME and current prices of electricity and thermalpower, which are not high enough for a profitable CHP production.

The ranking, which takes into account the green accountingprinciples, is somewhat different. In case of CHP plants using fossilfuels, it calculates all environmentally relevant costs including theenergy and pollution taxes, as well as costs for ash disposal in caseof gasification from coal CHP plant. However, it comes out that thepollution taxes applied in the EU countries (e.g. for the emissions of

[(Fig._5)TD$FIG]

Fig. 5. Results of Multi-Criteria Analysis for liquid and gaseous fuels.


NOx or SO2) and the ash disposal costs are negligible comparing tothe overall operating costs. The energy taxes, applied as minimumexcise duty adopted by the EU, also do not have substantialinfluence on the profitability of fossil fuel CHP plants. Denmark hasthe highest energy taxes for the fossil fuels in the EU, and the greenaccounting results presented in Table 18 are obtained using them.We can see that gasification from coal slipped from the first to thethird place, naphtha has fallen from the third to eighth place and isnow lower ranked than natural gas (6). The relative ranking of CHPplants using biofuels remained unchanged, where gasificationfrom wood is now the best ranked, followed by CHP plant usingflash pyrolysis oil. As a conclusion we may say that energy andpollution taxes in EU should be on a much higher level (e.g. like inDenmark) to be the efficient instruments for the reduction ofgreenhouse gases emission and air pollution on one side, and toprovide a strong support to renewable energy sources andprotection of natural capital on the other side. The situationwould be even more in favor of renewable energy sources, if EU

Table 18Different rankings for CHP plants using various fossil and bio-fuels.

Rank Cost-benefit analysis Green accounting analysis Socio/economic ana

1 Coal Wood RME

2 Wood f.p. oil Rape-seed oil

3 Naphtha Coal Waste meth.

4 f.p. oil Waste meth. f.p. oil

5 Waste meth. Slow pyr. Coal

6 Slow pyr. Natural gas Nat. gas

7 Nat. gas Rape-seed oil Wood

8 Rape-seed oil Naphtha Slow pyrolysis

9 RME RME Naphtha

introduced reasonable incentives for the price of electricityproduced using biofuels.

When we approach the problem of ranking CHP plants from thenational instead of corporate point of view, i.e. using the socio/economic analysis based on demand side effects, we get acompletely different picture. The CHP plants using RME andrapeseed oil are now the absolute champions, followed by the CHPplants using waste methanization and flash pyrolysis oil. Theresults for the RME and rapeseed oil may not be so surprising,when we now that they require an extensive agriculturalproduction of rapeseed, rapeseed oil extraction and RME produc-tion. We may say that CHP production based on RME and rapeseedoil has many positive impacts at the national level regardingeconomic gain, incomes, economic activity, related industrysupport, employment generated, quality of life, avoided ruraldepopulation, rural diversification and land management. Howev-er, this production is not profitable from the financial point of view,so policy makers might introduce some incentives for the price of

lysis MCA

All indicat. Excl. st. and risk Excl. envir. Excl. S/E

Coal Rape-seed oil Waste meth. Wood

Wood RME Rape-seed oil Coal

Waste meth. Wood RME Naphtha

Rape-seed oil Coal Coal Nat. gas

RME Waste meth. f.p. oil Rape-seed oil

Naphtha Naphtha Wood RME

Nat. gas Nat. gas Nat. gas Slow pyr.

f.p. oil f.p. oil Slow pyr. f.s. oil

Slow pyr. Slow pyr. Naphtha Waste meth.


electricity produced by CHP plants using RME or rapeseed oil, toinduce the interest of industrial stakeholders for applying theseplants in their factories.

Multi-Criteria Analysis (MCA) is also a useful instrument forcomparative analysis of different CHP production opportunities,simultaneously taking into account different perspectives ofdifferent stakeholders, translating their relative preferences intocorresponding criteria/weights selection. Policy makers now havea suitable tool to examine the CHP production using various fossiland bio-fuels and propose the corresponding changes in tax policyor introduce some incentives to support the more extensive use ofsome (or all) biofuels and to reduce the use of fossil fuels.

To rank CHP plants using various fossil and bio-fuels, we havedefined four groups with total of 44 criteria: technological criteria(3), financial criteria (static – 9, dynamic – 5, risk – 12), socio/economic criteria (economic – 5, social – 4) and environmentalcriteria (6). In this paper we assume that environmental criteria arethe most important and have the largest weight (80–100), followedby economic criteria (90–100), social criteria (50–80), dynamicfinancial criteria (40–60), technological criteria (30–80), riskcriteria (10–20) and static financial criteria (10). However, thesoftware tool we have developed is extremely suitable platform forexercising different relative preferences and for performingsensitivity analysis, i.e. to see how different perspectives influencethe decision as to the best biofuel for CHP production.

When all criteria are used in the MCA, the best ranked CHPplants are the ones using gasification from coal and from wood.These results are the same as for the financial appraisal ranking.CHP production based on waste methanization, rapeseed oil andRME are now ranked higher than in financial appraisal thanksmainly to socio/economic results. On the other hand due to socio/economic results CHP plants using naphtha, flash pyrolysis oil andslow pyrolysis are now ranked lower than in financial appraisal.

However, if we check the number of criteria in each particulargroup of criteria, we can notice that financial criteria comprisealmost 60% (26 out of 44) of all criteria, so the MCA is heavily biasedtowards financial standpoint. Therefore, in the second ranking ofCHP plants, we excluded static and risk financial parameters in anattempt to provide a more balanced approach to the problem. In thisbalanced approach CHP plants using rapeseed oil and RME are thebest ranked thanks to their superior socio/economic performanceand good environmental results. Again good environmental resultsare the main cause why the CHP plant based on gasification fromwood is now ranked higher than the one based on gasification fromcoal. CHP plant based on waste methanization falls from the third tofifth place, while the ranking of other CHP plant remains unchanged.

When we exclude environmental criteria from MCA, the socio/economic and financial criteria become predominant. The CHPplant using waste methanization profited the most in thissituation, because it shows fairly good results in socio/economicand financial domains, while at the same time environmentalcriteria, where this plant has bad results due to the use of organicmunicipal waste as a fuel, are now excluded. CHP plants usingrapeseed oil and RME are the second and third ranked followed bygasification from coal. CHP plant using naphtha is now the lowestranked, because it shows poor socio/economic performance.

The final ranking of CHP plants using MCA is produced wheninstead environmental criteria, socio/economic criteria are ex-cluded. As may be expected CHP plants based on gasification fromwood and coal are the best ranked followed by the CHP plantsusing naphtha and natural gas. Having in mind that socio/economic criteria are excluded from MCA, CHP plants usingrapeseed oil and RME are ranked surprisingly high – on the fourthand fifth place. On the other hand CHP plant using wastemethanization is expectedly ranked the lowest due to highemissions of greenhouse gases and other air pollutants.

9. Conclusions

The ecosystem has been sending us warning signals (the effectsof air and water pollution, climate change, natural capitaldepletion, etc.) for decades, but because these signals did nothave a direct individual impact on the majority of world’sinhabitants, we have continued on a path of unsustainable globaldevelopment. As we push up against the geological limits, thecheap energy that’s been driving development since the beginningof the industrial revolution will no longer be either cheap orabundant and we will come face to face with our ownunsustainable reality. No combination of known technologies willeven come close to filling the gap left by these declining non-renewable energy sources and it will take decades for us torecognize the natural limits to growth of our ecosystem andtransition to a steady-state and sustainable economy. Convention-al cash-flow analysis used for the appraisal of investment intorenewable energy projects, lacks substantial attempts at quantify-ing the dollar cost to society of pollution-caused or aggravatedconditions from the toxic constituents released from the burning offossil fuels, not to mention complete neglect of cost of depletingnon-renewable natural capital. Having the profitability as thecrucial concern, this appraisal methodology discourages invest-ment into the renewable energy sources. Therefore, the mostimportant step towards more widespread use of greener energy isto introduce the green accounting standards first into theinvestment project appraisal and then into every day accountingand financial/economic reporting at both corporate and nationallevel. The example of combined heat and power generation plantpowered by biofuel (renewable energy), used in this paper, israther persuasive, showing how the investors’ perspective canchange dramatically when the environmental impact is accountedfor in investment project appraisal phase.

In this paper we have used standardized methodologies tocompare industrial-scale CHP production from different fossil- andbio-fuels. Although these results are only approximate, they stillmay be indicative and useful for various stakeholders, because theyprovide different rankings from different perspectives using theexisting standards for financial appraisal, green accounting, socio/economic analysis and Multi-Criteria Analysis (MCA).

First we have undertaken twelve investment appraisals usingconventional cash-flow analysis and standard UNIDO methodolo-gy both for the biofuel production and various cogeneration plants,and ranked them from the investor’s viewpoint, where profitabilityand return of investment comes first. It is no surprise that the CHPplants using fossil fuels are generally better ranked than the onesusing biofuels. Then, we have undertaken three appraisals for theCHP plants using fossil fuels (coal, naphtha and natural gas) basedon the principles of ‘‘green accounting’’ and it appears that at thepresent level of minimum excise duty adopted by the EU for energytaxes and applied pollution taxes (France), there is no change in theranking of CHP plants and no stimulus for broader biofuel use. Onlywhen the maximum values for energy taxes, like those adopted inDenmark, is applied, we get a significant change of ranking in favorof CHP plants using biofuels. This also qualifies our software tool,PEGAS, facilitating investment project appraisal based on ‘‘greenaccounting’’ principles as a suitable platform for environmentalistsand policy makers, to calibrate the instruments used for renewableenergy promotion, like environmental taxes, green prices, govern-mental subsidies, etc.

The paper also analyses demand side effects in nine differentcases to assess the socio/economic (national) impacts of CHP plantsusing different fuels. At the moment, for EU specific circumstances,the CHP plants using Rapeseed Methyl Ester (RME) and rapeseedoil show a superior performance, thanks mainly to the extensiveagricultural production in Europe.


Finally, the multi-criteria-analysis has been performed, simul-taneously taking into account 44 technological, financial, socio/economic and environmental criteria to rank different fossil andbio-fuels in CHP production. When all 44 criteria are applied, CHPplants using biofuels are generally better ranked than the onesusing fossil fuels. However, the majority of criteria used arefinancial criteria (60%) and when we exclude some of them fromMCA to get a balanced number for each group of criteria, then thesituation changes even more in favor of CHP plants using biofuels,where the rapeseed oil and RME CHP plants become the bestranked. When environmental criteria are excluded from MCA, CHPplant using waste methanization (as the worst air polluter) becomethe best ranked. It seems that the socio/economic criteria are veryimportant for CHP plants using biofuels, because when thesecriteria are excluded from MCA instead of environmental criteria,then CHP plants using gasification from wood is the best ranked,but the next three places are occupied by CHP plants using fossilfuels. We may even say that from the national point of view, CHPproduction from biofuels is very beneficial.

Acknowledgements

This work has been partly supported by the EU Fifth FrameworkProgramme AFTUR project through the contract ENK5-CT-2002-00662and partly by the Ministry of Science and TechnologicalDevelopment of Republic of Serbia (Pr. No.: TR-13004).

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Dr. Mladen Stanojevic is a Senior Researcher at the Mihailo Pupin Institute. Hereceived his MSc degree in the field of belief revision/truth maintenance and PhDin the area of natural language processing, both from the University of Belgrade. He hasbeen working on real-world decision support systems for environmental protection,financial and socio-economic analysis of investment projects, automated contentannotation, intelligent web applications, etc. His research interests include decisionsupport systems, knowledge representation techniques, natural language processing

techniques, semantic web, web services, service oriented architectures, etc. In theseareas he published over 80 scientific papers.

Prof. Sanja Vranes is jointly appointed as a Scientific Director of the Mihajlo PupinInstitute and as a Professor of Computer Science at the University of Belgrade. From1999 she has been engaged as a United Nations Expert for information technologies,and from 2005 as evaluator and reviewer of EC Framework Programme Projects. Herresearch interests include decision support systems, semantic web, knowledge man-agement, intelligent agents, e-collaboration. In these areas she published over 150scientific papers. She serves as a reviewer of international journals, like IEEE Transac-tion on Computer, IEEE Intelligent Systems magazine. She was a visiting professor atthe University of Bristol, England in 1993 and 1994. In the period 1999–2004 she was aScientific Consultant at the ICS-UNIDO, International Center for Science and HighTechnology in Trieste, Italy. She has also served as a project leader and/or principalarchitect of more than 20 complex software projects. She is also a member of SerbianAcademy of Engineering Sciences and of National Scientific Council.

Prof. Iskender Gokalp received his BS degree in Aeronautical Engineering fromIstanbul Technical University. He had his MSc in Thermal and Mechanical Sciencesand PhD in Combustion from University Pierre et Marie Curie, Paris. He joined CNRS in1994 and has been working as Research Director, Founder and Director of theEnergetics, Propulsion, Space and Environment, Director of the French National Centerfor Technological Research on Propulsion of the Future and Director of the Laboratoirede Combustion et Systemes. He is the editor of many scientific magazines and journals,also is the president and a member of many boards including Scientific Board of theUniversity Orleans, Boards of Directors, Microgravity Advisory Committee, ESA TopicalTeam. He is a supervisor of more than 60 PhD at the University of Orleans, since 1987.His research interests include turbulent combustion; turbulence; modelling of turbu-lent flames and strongly variable density turbulent jets (RANS, LES, DNS), spray anddroplet combustion; metal combustion, microgravity combustion; combustion ofbiomass, fire extinction, laser diagnostics for combustion; science and technologystudies especially on interdisciplinarity in complex problem solving. In these researchareas he has published more than 300 papers.